Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
1. Stupid Investment of the Week? There are probably worse. 2. Stupidest Manager of the Year? Certainly in the running. Other formerly smart managers having stupid years: Brent Lynn (Janus Overseas, JAOSX) and, again, Heebner (CGMFX) 3. A little late for "Stupidest" anything on Fairholme? Probably, although I agree with some of Jaffe's reasoning (such as ego.)
Reply to @Kenster1_GlobalValue: I think he held a big position in AHM or something like that right into the credit crisis. There was some story about that fund in 2008, I forget the details, but I think it was AHM. SLSDX, Selected International, had a big position in Sino-Forest. That's down 28% YTD.
It looks bad and it's not safe. But can anyone tell us how the fund will be positoned 5-10 yrs from now and how a $1000 investment and DCAing $100/mth will turn out over that time? When someone can tell me and prove to me they know how the future from here will turn out for FAIRX and can prove it TODAY, then I will listen to them. Until then all they are doing is looking at current returns which anyone can do. You don't have to have a job at www.marketwatch.com to know this. All this guy is, is a monday morning q-back. Any idiot can tell you that the fund is sucking and the investments are risky right now....tell me something I don't know. These jerks get paid for this? Wanna earn your paycheck? Tell me exactly how the future will turn out and then I'll listen
I really never understood why people who write these columns or are sports analysts etc... get paid (a lot of money too) to do this stuff. Can we not read or see current results for ourselves? Do we really need someone to tell us that a bad pass or play call in the last minute of the game cost the team a win? Can't we look at what BB is investing in and see its down 30+ % for the year? Why is someone getting paid a lot of money to tell us this stuff?
Did you ever watch a President speak and then after he spoke some moron tells us for the next 15 min. what he said? What the heck is that??? I wish I could get a high paying job where I can come in after the fact and tell people the results of something they alredy know for themselves. Holy crap! LOL
Reply to @Anonymous: Do I agree that it's a little late and little obvious? Sure. However, Jaffe's points about ego getting in the way may be - I think - valid (I still think the Bank of America conference call and the "thank you note" to the government took tremendous ego ("Thank you for continuing to bail out my positions with taxpayer dollars", it might as well have said), and Berkowitz thinking that this was a repeat of financial crises before:
__________________ 2011: "For his part, Berkowitz seems prepared to wait. “I’ve studied these companies for decades. This is how I made my money in the 90’s with at the time what was Wells Fargo”, explains Berkowitz.
“Wells Fargo was said to be going bust, everybody was shorting Wells Fargo. Well, it only was up seven or eight times in as many years. ***I don’t know how the banks are going to work it out this time***, but they’re very cheap, they are priced to fail and we’re going to make some good money.” "
Berkowitz: "Maybe it's because I don't invest in things I can't understand. Eighteen years ago, after the financial stocks got killed, I was a big buyer of Wells Fargo, Freddie Mac and MBIA. They were simpler businesses then -- and they were cheap and understandable. You could read an annual report or a 10-K and you knew what you were getting. Or take American International Group. If you looked at an AIG annual report six or seven years ago, you saw one paragraph on derivatives. You look at an AIG annual report today and you see 15 pages on derivatives. I don't think company insiders fully understand what's going on, let alone outsiders. So if I don't understand something, I've learned to walk away."
"I don't know how they're going to work it out this time?" Not what I would want to hear as a Fairholme shareholder (and I don't think it's crazy to say that: if I was ever invested with a fund making a concentrated bet and the manager said, "I don't know how they're going to work it out this time", I'd sell.
So, what's the thesis if he "doesn't know how they're going to work it out this time?" I mean, it's ASTONISHING to hear those words out of the mouth of a manager - even if he is well aware of how they will, don't say you're not - who essentially has made a massive bet on them working it out. I've said it after the government thank you note, and I'll say it again: I continue to believe that Berkowitz is making a tremendous bet that TBTF will continue onward, and that's what the thesis is.
Do I think TBTF will continue? Maybe, maybe not. If not and Bank of America goes, that will be a black hole that will take a lot down with it.
I don't agree with Jaffe's discussion that Berkowitz can't/shouldn't go activist with St Joe. How that plays out who knows (is it too much of a distraction?) but I don't agree with that aspect of the article.
If anything, the Stupid Investment of the Week should have been Fairholme Allocation; having two positions make up nearly 50% of the fund is taking an ABSURD risk, and the fund continues to look to me like a dumping ground for more of the same Berko-bets. Why bring out another fund only to have it bring nothing new to the table? If these financial stocks get much worse, how does Berkowitz get out if need be if it means unwinding gigantic positions? One can say that he won't, he can say that he won't, but what if it comes to that, and where will the fund be if it does?
Lastly, I will say positively about one Berkowitz position that Berkshire Hathaway-like (a conglomerate with investments in many different businesses, Leucadia has often been described as "Berkshire-like") Leucadia National (LUK) has gotten really c-h-e-a-p (likely knocked around recently due to its holding in Jefferies - JEF). I don't know if I will, but I'm actually thinking about finally buying that next week. That could *absolutely* go lower in this market, but I think Leucadia at $23 and change is absolutely very interesting. Brookfield Asset Management (BAM) is another Berkowitz idea I continue to like, although I think Leucadia is very, very tempting (to me, at least) at these levels/valuation. Former Berkowitz St Joe nemesis David Einhorn's Greenlight RE is also looking cheapish at $20 and change. (GLRE)
I guess I have trouble understanding some of what is going on in this article.
Obviously, FAIRX is doing poorly. But deep value funds are very often out of step with the market. If you want the market, buy an index.
I bought the fund because I trusted the manager and don't have the time or the expertise to make my own stock picks; not because I expected the manager to execute trades for me. When I bought the fund, I knew very clearly that it was highly focused and tended to buy distressed or out-of-favor assets. My struggle was in deciding what % of total assets I should allocate to FAIRX. I decided on treating it as a speculative play, and limited it to something in the neighborhood of 5%.
I'm surprised that the author doesn't recognize the JOE play for what Berkowitz intends -- to establish a Berkshire-like vehicle for alternative investments. I believe Romick at FPA is on record as trying to do something similar. Other funds have taken activist postures toward stocks. I wonder if Berkowitz didn't have the record that he did (or the appetite for the camera) if the JOE affair would have been in the press so much. So much of the writing on Berkowitz and JOE reminds me of the output of folks who write psychoanalytic biographies (George W. Bush -- Oedipal complex !).
My major beef with Berkowitz isn't his style, but his opening new funds and failing to limit AUM (all Fairholme funds and separate accounts). In this sense, I think he's stretched himself too thin; not because of his activisim with JOE. Bruce brought in too much hot money, which limited his cash reserves and offered downside protection for his focused bets. I tend to think if Bruce was a true value investor he would have done what Sequoia (which was bottom of the barrel in 2003, 2004, 2006 and 2009) did and close up shop to protect existing shareholders.
Reply to @scott: I'm going to have to disagree with you on this. I like BB's argument and would buy more on weakness (like a 30% drop from here). I don't really care that he changes his mind or doesn't control for risk. Its an aggressive fund.
Comments
1. Stupid Investment of the Week? There are probably worse.
2. Stupidest Manager of the Year? Certainly in the running. Other formerly smart managers having stupid years: Brent Lynn (Janus Overseas, JAOSX) and, again, Heebner (CGMFX)
3. A little late for "Stupidest" anything on Fairholme? Probably, although I agree with some of Jaffe's reasoning (such as ego.)
Did you ever watch a President speak and then after he spoke some moron tells us for the next 15 min. what he said? What the heck is that??? I wish I could get a high paying job where I can come in after the fact and tell people the results of something they alredy know for themselves. Holy crap! LOL
__________________
2011: "For his part, Berkowitz seems prepared to wait. “I’ve studied these companies for decades. This is how I made my money in the 90’s with at the time what was Wells Fargo”, explains Berkowitz.
“Wells Fargo was said to be going bust, everybody was shorting Wells Fargo. Well, it only was up seven or eight times in as many years. ***I don’t know how the banks are going to work it out this time***, but they’re very cheap, they are priced to fail and we’re going to make some good money.” "
http://www.cnbc.com/id/43343328/Fairholme_s_Berkowitz_Still_Bullish_on_Bank_of_America
vs in 2009:
Berkowitz: "Maybe it's because I don't invest in things I can't understand. Eighteen years ago, after the financial stocks got killed, I was a big buyer of Wells Fargo, Freddie Mac and MBIA. They were simpler businesses then -- and they were cheap and understandable. You could read an annual report or a 10-K and you knew what you were getting.
Or take American International Group. If you looked at an AIG annual report six or seven years ago, you saw one paragraph on derivatives. You look at an AIG annual report today and you see 15 pages on derivatives. I don't think company insiders fully understand what's going on, let alone outsiders. So if I don't understand something, I've learned to walk away."
http://www.kiplinger.com/magazine/archives/2009/01/bruce_berkowitz.html?kipad_id=x?kipad_id=x
___________________________
"I don't know how they're going to work it out this time?" Not what I would want to hear as a Fairholme shareholder (and I don't think it's crazy to say that: if I was ever invested with a fund making a concentrated bet and the manager said, "I don't know how they're going to work it out this time", I'd sell.
So, what's the thesis if he "doesn't know how they're going to work it out this time?" I mean, it's ASTONISHING to hear those words out of the mouth of a manager - even if he is well aware of how they will, don't say you're not - who essentially has made a massive bet on them working it out. I've said it after the government thank you note, and I'll say it again: I continue to believe that Berkowitz is making a tremendous bet that TBTF will continue onward, and that's what the thesis is.
Do I think TBTF will continue? Maybe, maybe not. If not and Bank of America goes, that will be a black hole that will take a lot down with it.
I don't agree with Jaffe's discussion that Berkowitz can't/shouldn't go activist with St Joe. How that plays out who knows (is it too much of a distraction?) but I don't agree with that aspect of the article.
If anything, the Stupid Investment of the Week should have been Fairholme Allocation; having two positions make up nearly 50% of the fund is taking an ABSURD risk, and the fund continues to look to me like a dumping ground for more of the same Berko-bets. Why bring out another fund only to have it bring nothing new to the table? If these financial stocks get much worse, how does Berkowitz get out if need be if it means unwinding gigantic positions? One can say that he won't, he can say that he won't, but what if it comes to that, and where will the fund be if it does?
Lastly, I will say positively about one Berkowitz position that Berkshire Hathaway-like (a conglomerate with investments in many different businesses, Leucadia has often been described as "Berkshire-like") Leucadia National (LUK) has gotten really c-h-e-a-p (likely knocked around recently due to its holding in Jefferies - JEF). I don't know if I will, but I'm actually thinking about finally buying that next week. That could *absolutely* go lower in this market, but I think Leucadia at $23 and change is absolutely very interesting. Brookfield Asset Management (BAM) is another Berkowitz idea I continue to like, although I think Leucadia is very, very tempting (to me, at least) at these levels/valuation. Former Berkowitz St Joe nemesis David Einhorn's Greenlight RE is also looking cheapish at $20 and change. (GLRE)
Obviously, FAIRX is doing poorly. But deep value funds are very often out of step with the market. If you want the market, buy an index.
I bought the fund because I trusted the manager and don't have the time or the expertise to make my own stock picks; not because I expected the manager to execute trades for me. When I bought the fund, I knew very clearly that it was highly focused and tended to buy distressed or out-of-favor assets. My struggle was in deciding what % of total assets I should allocate to FAIRX. I decided on treating it as a speculative play, and limited it to something in the neighborhood of 5%.
I'm surprised that the author doesn't recognize the JOE play for what Berkowitz intends -- to establish a Berkshire-like vehicle for alternative investments. I believe Romick at FPA is on record as trying to do something similar. Other funds have taken activist postures toward stocks. I wonder if Berkowitz didn't have the record that he did (or the appetite for the camera) if the JOE affair would have been in the press so much. So much of the writing on Berkowitz and JOE reminds me of the output of folks who write psychoanalytic biographies (George W. Bush -- Oedipal complex !).
My major beef with Berkowitz isn't his style, but his opening new funds and failing to limit AUM (all Fairholme funds and separate accounts). In this sense, I think he's stretched himself too thin; not because of his activisim with JOE. Bruce brought in too much hot money, which limited his cash reserves and offered downside protection for his focused bets. I tend to think if Bruce was a true value investor he would have done what Sequoia (which was bottom of the barrel in 2003, 2004, 2006 and 2009) did and close up shop to protect existing shareholders.
I hadn't even noticed that Bill Miller and Legg Mason Opportunity (LMOPX) are down 37% for the year.